Car lots are an important part of the automotive industry. They provide a place for car buyers to find their dream vehicle and set up financing.
But used-car dealerships are facing a tough time right now due to the ongoing inventory shortage and rising prices of pre-owned vehicles. These car lots can be difficult to navigate, and you should be aware of some common pitfalls.
Independent dealerships
When shopping for a new car, one of the first things you’ll want to know is whether you’re dealing with a franchise or independent dealership. In general, franchised dealers are affiliated with a vehicle manufacturer and have a contract to sell cars from that brand.
In contrast, independent dealerships don’t have a manufacturer affiliation and buy cars from other sources, including trade-ins and auctions. This makes them a good choice for consumers who are looking to save money and get a great deal on their next vehicle.
Another big difference between franchise and independent used-car dealers is their financing options. While franchised dealers may be limited to using a few captive finance companies, many independent dealerships are able to work with outside lenders and even have their own in-house credit option. This can be helpful for people with a bad credit score, or those who need longer term loans.
Buy here, pay here dealerships
A buy here, pay here dealership is a type of car lot that allows buyers with poor credit to secure financing for their purchase. While traditional dealerships offer auto loans from a bank or other lender, buy here, pay here dealers finance their own sales and collect all payments directly from the buyer.
They can make a large profit off the loan because they charge higher interest rates than banks or other lenders. They may also be less forgiving if you fall behind on your payments.
These dealers are more likely to churn their cars than other types of dealerships, meaning that they sell the same car several times within a year. This can have a negative impact on your credit score as well.
Some buy here, pay here dealerships will report your payments to the credit bureaus, but others do not. It is important to ask if they do or not before you buy a vehicle from them.
Dealerships that buy your car for cash
If you’re looking to trade your current car in for a new one, or sell your old one, dealerships that buy cars for cash might be the best option for you. They will provide all the necessary paperwork and payment (and sometimes a ride home), making the process much easier than other car lots.
But there are some things you should know about these dealerships before deciding to buy your next vehicle from them.
Dealerships aren’t the best place to find financing deals, and they don’t always honor return policies for cash buyers. Plus, they may charge expensive add-on fees that you don’t understand.
In addition, many dealerships mark up the interest rate on loans they arrange for their customers. This can make financing a vehicle more expensive than it would be elsewhere, especially if you have poor credit.
Dealerships that sell new cars
If you want to buy a new car, one of the most popular places to look is at a dealership. There, you’ll find a large selection of vehicles and a variety of financing options.
But dealers aren’t all created equal. Some are known for putting markups on their cars. This happens because they want to keep their sales associates motivated and sell as many vehicles as possible.
They also have monthly, quarterly and year-end sales goals that they’re trying to hit. This means they’re offering attractive low- or no-cost financing incentives and cash back deals to encourage shoppers to visit their lot.
In addition, most dealers want to make as much money as possible off their unsold cars. That’s why they sometimes trade in their slow-selling vehicles for more quickly-moving models.
